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New survey results from over 600 electric utility professionals show that the power sector is embracing distributed energy resources (DERs) — but doing so in its characteristic tentative fashion.

Nearly 85% of respondents to Utility Dive’s 2017 State of the Electric Utility Survey indicated they expect distributed generation to grow moderately or significantly in their power mix over the next 10 years. 90%, meanwhile, said they believe their utility should have a business model to embrace the DER shift.

But utilities love to be “first to be second,” as the saying goes, allowing a new technology to be vetted before integrating it into their operations. That seems to be their approach to distributed energy as well, with the survey indicating utilities are more likely to be invested in pilot programs for emerging DERs like rooftop solar and storage, rather than having them currently integrated into their core operations.

Utilities have always utilized pilots for emerging technologies, but when it comes to DERs, a new trend may be emerging. As utilities and DER vendors debate changes to net metering policies, rate design and other regulatory issues, utility pilot programs are often a key element of compromise.

"Pilot programs are being used especially as a means to test time-varying rates, residential demand charges, and community solar,” said Autumn Proudlove, manager of policy research at the North Carolina Clean Energy Technology Center.

Proudlove’s latest report, the Q1 2017 Solar Policy Update, confirms the trend toward pilots as a basis for compromise, she said. “Many are related to high-profile proceedings, so the impact is significant.”

Examples of those proceedings span from coast to coast, but whether they will entice utilities to integrate DERs into their core operations remains to be seen — as does the impact on vendors in the space.

DER advancing through pilots and trials

Expectations of DER growth are highest in regions where “the resources have already started to take hold,” the survey reports. In many of those areas, regulatory compromises allowing pilot projects played a key role in spurring initial deployment and market designs allowing for further DER growth.

Utility professionals in New England states were the most confident in rooftop solar growth, for instance, with 58% expecting significant growth.

Most New England states have regulatory proceedings in response to rising DER penetrations. In Rhode Island, Connecticut and other states, the DER industry worked alongside utility policy specialists to design new policies that included pilots.

That group led to a “very rarely antagonistic and often collaborative” relationship between the DER stakeholder groups and National Grid, said Abigail Anthony, executive director of the Acadia Center, a clean energy advocate.

Just weeks ago, utilities and solar advocates in New Hampshire also utilized the pilot playbook, agreeing to a path forward on a net metering successor tariff that includes a set of pilots on TOU rates, demand charges, community solar and more.

The ongoing negotiations, stakeholders said, could lead to a modernized grid and a thriving, data-driven DER marketplace in New Hampshire.

The pilot trend extends to other resources as well. More than 80% of respondents from the West Coast, Great Plains, New England and Rocky Mountain states expect moderate or significant growth in demand response and demand-side management.

In many of those states, DR and DSM penetrations are now growing because of groundwork laid in regulatory proceedings. In the landmark 2016 Colorado compromise between DER advocates and Xcel Energy, agreement hinged on replacing Xcel’s fixed “grid use charge” with a voluntary TOU rate trial and a voluntary demand charge pilot program.

Also critical to the settlement was a commitment from DER advocates not to oppose a trial decoupling proposal Xcel filed in a separate docket. Decoupling allows utilities to avoid revenue losses from the kinds of efficiency gains created by DR and DSM.

Distributed energy storage is also benefiting from the pilot trend.

Survey respondents from New England and the West Coast were the most bullish on the technology, with about 80% expecting moderate or significant growth.

High electricity rates in those regions make behind-the-meter storage appealing relative to other parts of the country, but there is also a distinct difference in the level of utility familiarity with storage in those regions due to pilots.

In California, examples Pacific Gas and Electric Supply-side Pilot (SSP) and Excess Supply Pilot (XSP) programs. They proved the capabilities of DR and opened to the door to 2016’s statewide Demand Response Auction Mechanism (DRAM) pilot program. The auction winners are now fully engaged in the California Independent System Operator (CAISO) market process and a 2017 auction is underway.

Even in the regions least confident about DER growth, expectations were still palpable. Southwestern respondents were among the most bearish, but a clear majority still expected moderate or significant growth in rooftop solar.

There too, utility pilots are providing grounds for compromise and continued growth.

In March, Arizona regulators brokered a settlement between DER advocates and Arizona Public Service (APS), the state’s dominant electric utility, over rooftop solar incentives and rate structure. Although APS will be allowed to offer time of use (TOU) rates and demand charges, they will not be mandatory. In effect, the rate design compromises are de facto trials of TOU rates and demand charges, which the utility expects could spur the growth of solar-plus-storage installations.

"It's been our position to get ahead [of rooftop solar issues] and try to create a sustainable solar path," Greg Bernosky, APS Director of Regulatory Affairs said of the settlement.

"It's intended as a bridge to other technologies. We didn’t solve [just for] solar; we wanted to solve for things that are starting to happen.”

Will utilities go behind the meter?

Utilities have long looked for new business opportunities in distributed resources, the survey report notes, but to this point, they’ve mostly invested in the most familiar DERs. Grid communication technologies, rooftop solar, DR and DSM, and community shared renewables the leaders in current utility DER investments, according to the survey.

But with the exception of rooftop solar, those resources are also some of the easiest to deploy from a regulatory perspective, as they typically don’t involve utilities directly deploying assets behind the customer’s meter — typically the realm of independent vendors.

That could be about to change, however. 95% of respondents to the survey indicated they utilities should be able to rate-base investments behind the meter, with 71% saying it should be allowed in “all or most circumstances.”

Despite the near-consensus among utility professionals, BTM rate-basing is a controversial subject in the sector. Independent DER vendors typically look at it as anticompetitive, fearing utilities will use their market power and brand familiarity with customers to monopolize the market.

But here too, pilot projects may offer a route forward, at least in the early days of utility BTM deployment.

Despite residual hostility between solar developers and utilities following a contentious 2013 net metering debate, Lon Huber, director at consultancy Strategen, told Utility Dive he was able to broker a compromise on behalf of the state’s consumer advocacy office.

By keeping parties focused on the numbers, stakeholders settled on a program that allowed the utilities to deploy solar behind the meter to study its effects on the distribution system.

There are times, Huber acknowledged, when “the gap between parties is just too wide” and even small pilot proposals are unfeasible. At those times, limiting disagreement to just a few issues and including as many stakeholders as possible is important, he said.

“It creates a more manageable decision set and minimizes after-the-vote disputes.”